redit card users in India have been rising gradually over the past few years according to the Reserve Bank of India (RBI) data.
While credit cards were not a popular thing among Indians a decade ago, increased exposure to various banking instruments has led to rapid multiplication of debit and credit cards.
The latest findings coming from CIBIL Industry Insights Report (TransUnion) from last year showed that Indians have become significantly aggressive when it comes to credit card usage.
The TransUnion third quarter 2018 report showed that Indians have a total of 3.69 crore credit card users along with a total outstanding balance of over Rs 84,000 crore.
On an average, a credit card holder in the country had a balance of Rs 46,000. All of this data points at a meteoric rise in terms of credit card usage in the country.
Having said that, credit cardholders must also know that using such instruments involve a significant amount of risk and could hurt an account holder’s credit score.
Why is it necessary to maintain a good credit score?
A credit score is a numerical expression based on analysis of a person’s credit log and reflects the creditworthiness of an individual.
It is very important that you maintain a high score in order to avail benefits such as bank loans or personal loans. Any activity which involves borrowings from the bank may be dented if credit bureaus score you poorly based on your usage.
Now that you have a fair idea about credit score, here are five key tips that will help you maintain a good credit score:
Never keep pending dues
This problem is often related to youngsters or young employees who have applied for a credit card without any fixed source of income or a low income.
A credit card gives you access to unsecured loans, which has to be paid back to the bank.
If you do not make timely payments, the interest rate will keep accruing and your repayment will turn into a treacherous cycle running over years. Besides, your credit score will take a major hit if you default on monthly payments.
For instance, if you fail to pay an outstanding amount before the due date, you will have to pay higher interest along with a late fee.
If you want to maintain a good credit score, you should keep a track of your monthly payments and keep aside a portion of your income towards clearing dues.
Do not pay below the minimum due
Credit card users should make it a habit to pay either the full outstanding amount or any amount above the minimum outstanding due.
Failing to do so will severely affect your credit score and may even attract notice from the bank. In such a scenario, individuals should thoroughly go through their credit card statements and at least pay a little more than the minimum outstanding due.
Never overuse your credit card
As mentioned earlier, a credit card holder gets access to unsecured loans, capped at a certain limit by banks.
For instance, if you have a total limit of Rs 1, 40,000, you should try to keep your utilisation below 30 per cent in order to keep maintain a healthy credit score.
Credit bureaus, which are responsible for scoring your credit usage, often give healthy ratings to individuals who cap their spending at 30 per cent of the total available limit.
While it is not bound by any hard-and-fast rule, it is a practice recommended by most experts from the financial sector as it helps you in maintaining a high credit score.
More the messier
If you are already struggling with your credit score, refrain from applying for another one. In case you end up spending on both the cards, the debt pressure may become too hot to handle.
While it is ideal to have two credit cards in order to maintain balance, it is a very tricky affair when your credit score is low and failure to repay can drastically affect your prospects of securing a loan.
NEVER withdraw cash using a credit card
This is probably the most important point out of the entire lot.
Individuals should note that using a credit card to withdraw cash is an extremely expensive affair and the rate of interest is significantly higher than normal purchases made online or at PoS machines.
Withdrawing cash is not viewed as a positive action by both banks and credit bureaus. Therefore, you should never opt to withdraw cash using credit cards if you want to maintain a good credit score.
Avoid one-time debt settlement
This option should ideally be avoided unless you are absolutely broke and are looking to cut down the size of your debt.
While lenders may agree to cut down your debt mount, it takes a huge toll on credit score as the lender assumes that you are incapable of paying the debt in full.
The bank will subsequently report this to the credit bureaus, which can lower an individual’s credit score subsequently.